Casual dining restaurant operator
Red Robin Gourmet Burgers Inc.
), which currently boasts more than 480 restaurants across the
United States and Canada, is set to open a new restaurant in
Peoria, Ill. shortly.
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At present, this gourmet burger maker has about 21 units in
Illinois, which makes the state a relatively newer market for Red
Robin compared to California, which has as many as 70 units.
As per the National Restaurant Association, Illinois's restaurant
industry contributes considerably to the state's revenues.
According to the research organization, Illinois's restaurants
are expected to record $21.7 billion in sales in 2013.
Illinoisans' inclination toward eating out frequently is
favorable for the growth of the sector, which, we believe, has
caught the attention of Red Robin.
Red Robin has been on an expansion spree for quite some time. Red
Robin's units are mostly located in California, Colorado, North
Carolina, Ohio, Virginia, and Washington. While the company seems
comfortable expanding in familiar territory, we also foresee
expansion in relatively new markets to avoid market saturation.
This Colo.-based company is striving hard to explore new
development opportunities in the untapped markets of Florida, New
York, New Jersey, Chicago and Texas and further enhance its
presence in the U.S.
That's not all. This Zacks Rank #3 (Hold) company is also keen to
expand its other formats. The company's smaller prototype
restaurants, Burger Works, will likely accelerate its growth in
non-traditional locations and also improve return on invested
capital. At present, 'Burger Works' is witnessing an average
sales increase of about 6%. The company expects to open 15
additional Red Robins this year and many more Burger Works in the
second half of the year.
While we appreciate the company's effort to move beyond its
barriers, investors should note that entry into under-penetrated
markets always involves some risks initially. There will be an
attendant headwind of higher pre-opening costs in these areas
compared with matured trade areas, in which the company already
has support infrastructure. This can limit margin expansion in
the initial stages of operation.
Other Stocks to Consider
Some other players in the restaurant industry, which look
attractive at current levels, include
The Wendy's Co.
Domino's Pizza Inc.
Burger King Worldwide Inc.
), all carrying a Zacks Rank #2 (Buy).